Coke Takes Stake in Honest Tea

Organic Brand Is Latest Noncarbonated Drink to Join Portfolio

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NEW YORK ( -- Underscoring its interest in noncarbonated drinks as well as its willingness to look outside its own company for product innovation, Coca-Cola Co. has acquired a 40% interest in organic-beverage marketer Honest Tea.
Honest Tea beefed up its marketing team to revamp Honest Ade, an organic line of thirst quenchers.
Honest Tea beefed up its marketing team to revamp Honest Ade, an organic line of thirst quenchers.

According to a statement issued by the companies yesterday, Coca-Cola could buy the outstanding shares, or Honest Tea shareholders could elect to sell the outstanding shares at some point. Financial terms of the investment were not disclosed.

Earlier Glaceau purchase
The stake in Bethesda, Md.-based Honest Tea marks Coca-Cola's second investment in a non-carbonated beverage company in less than a year. In May, Coca-Cola spent $4.1 billion to acquire Glaceau, the maker of Vitamin Water.

This latest purchase highlights the steps cola companies are taking to insure themselves against consumers' dwindling interest in carbonated beverages. Carbonated-soft-drink volume has given way to bottled waters, energy drinks and ready-to-drink teas in recent years. Comprehensive data for 2007 is not expected to be available until the beginning of March. However, a report released by Beverage Digest last week indicates that, at least in the supermarket channel, carbonated soft drinks are suffering. Total volume for the category declined 7.6%, according to the report. By comparison, bottled water volume grew 10.2%, ready-to-drink tea volume increased 19.9% and energy drink volume leapt 24%.

Honest Tea has not embraced traditional advertising thus far. Since Seth Goldman and Barry Nalebuff founded the company in 1998, promotional partnerships and consumer recommendations are used to fuel sales. But that could all change, given the investment of a marketing heavyweight like Coca-Cola.

'Don't do a lot of advertising'
"We don't do a lot of advertising. It's usually guerilla style, and we do a lot of point-of-sale in stores, but there's not a lot of mass marketing," said Dale Crowell, a spokesman for Honest Tea. "We've really built the brand on the quality of the brand and word-of-mouth with consumers. That's to date. We'll see what happens. Obviously, there will be opportunities."

It's not clear what those opportunities will entail just yet. Scott Williamson, a spokesman for Coca-Cola, said it would be premature to speculate. "Seth Goldman and his management team will continue to operate as an independent business and will continue to make all of those decisions," he replied when asked whether Coca-Cola's marketing budget and agency contacts would be utilized by Honest Tea.

At this point, Honest Tea's internal marketing structure is slim, although it has seen significant growth over the last year. The team of five is led by Jesse Merrill, director of marketing, Mr. Crowell said, noting that three of those five team members came on board in the last year. The marketing team was beefed up to develop the look of the brand and revamp Honest Ade, an organic line of thirst quenchers.

The marketing team has also spearheaded several promotional partnerships in an effort to raise brand awareness. Most recently, the company teamed up with TerraCycle to recycle its Honest Kids drink pouches. The pouches are being repurposed as handbags and clutches and will be sold through mass retailers, including Target and Walgreens beginning later this year. "We are a relatively small, can-do, entrepreneurial company," Mr. Crowell said.
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